Do You Need A Financial Adviser?

Whether you're a millionaire or a member of the middle class, chances are you never got much instruction in managing your money. And a book, call-in television show or a course may not give you the expertise you need to handle every aspect of your finances yourself, especially as you increase your income and take on more responsibilities and investments.

But trying to determine when or whether to hire a financial adviser, and how to ensure you won't regret it, can be tricky.

It's natural to feel a little nervous about handing your hard-earned money over to a stranger to manage--especially in the wake of scandals involving high-profile names like New York financier Bernard Madoff and Texas billionaire R. Allen Stanford, who've been accused of losing billions of their clients' dollars. There's also a prevailing perception that advisers are just salespeople being paid to peddle their company's investment products, more concerned about earning commission than looking out for your best interests. (And some are.)

It doesn't help that there are a lot of people out there calling themselves "financial advisers"--nearly 176,000, according to the Bureau of Labor Statistics, which further projects that the number could reach almost a quarter-million by 2016. Yet there's no exam or coursework required to become one. So the range of skills, specialties and services can vary significantly.

Still, a good adviser can be worth the expense, especially once you've got a family, a mortgage and a fair amount of money to manage, says Liz Pulliam Weston, author of Easy Money: How to Simplify Your Finances and Get What You Want out of Life. Moreover, many advisers are actually qualified to do a lot more than tell you how to invest. They can counsel on everything from taxes to insurance to estate planning. "They're basically life planners," she says.

But if you want to make sure you get your money's worth, here's what you should know:

Anyone can call himself (or herself) a financial adviser. So make sure yours is actually qualified to give advice. Look for the Certified Financial Planner designation, which requires three years of experience; passage of a comprehensive examination and several hours or coursework covering everything from investment products to consumer protection laws. About 58,000 advisers have the certification, according to the CFP Board. Others to look for: CFA (Chartered Financial Analyst), CPA/PFS (Certified Public Accountant/Personal Financial Specialist), ChFC (Chartered Financial Consultant) and CLU (Chartered Life Underwriter).

It's easy, and essential, to vet your adviser. Ask for both parts of a potential advisor's "Form ADV." Part I tells you if they've had problems with regulators or clients. Part II outlines services provided, fees and investment strategies. You can also access it online at the Investment Adviser Public Disclosure Web site. Make sure all certifications are current. (Go to www.cfp.net to check a CFP's status). Check out the Financial Industry Regulatory Authority's BrokerCheck site if your adviser is also a broker.

Not all advisers take commission on the products they recommend. Yes, some advisers are little more than salespeople. But the National Association of Personal Financial Advisors is composed of independent, fee-only members, who are paid solely by the client and get no compensation based on financial products they recommend (unlike "fee-based" advisers, who may make a commission). They also have a fiduciary duty to put your needs first, above their own or their firm's stockholders. You can search for one of NAPFA's nearly 2,100 members by location or name online. If you don't want to pay a lot, try the Garrett Planning Network. Its more than 300 members are independent, fee-only advisers (many of whom belong to the NAPFA) who charge by the hour and focus on "beginners, middle-income consumers and do-it-yourself-ers."

Advisers should do more than come up with an investment plan. Many certifications require coursework in retirement, taxes, estate planning, insurance and risk management. "The better planners are looking at all five of those," says Chris Hennessey, faculty director of executive education at Babson College and member of the Business Advisory Group for Putnam Investments. They should be able to provide you with one-stop shopping, he says, advising you on every aspect of your financial life and connecting you with specialists in specific areas, such as tax accountants or insurance brokers.

The softer skills matter too. When Andréa Mahee's dad died, she sought out an adviser at her local New York bank branch to help figure out what to do with her inheritance. "But I wasn't convinced he really got me," says the 54-year-old fundraiser. She ended up hiring Francis Financial, a fee-only female-led firm, instead. "I really wanted someone who understood what I was going through, emotionally and experientially, as a woman." Whatever gender you choose, you should feel at ease with your adviser's approach, be sure she (or he) understands your needs and concerns, and is available to answer any questions that may come up. Such "soft" skills are getting more attention from the industry too. NAPFA recently added a sixth core competency for members: communication and counseling.